Pru points out pension opportunities for 2016

Pensions freedom and choice has created a fundamental change in the way clients and advisers see opportunities with pensions.

We’ve also seen those aged 55 plus embrace these changes,with Financial Conduct Authority data in September showing over 200,000 people access their pensions via uncrystallised fund pension lump sum, income drawdown and small pots exemption in the first three months of this tax year.

For advisers working in the field of retirement income the new buzz words have been ‘sustainable income’ and ‘sequence of return risk’.

Providers have been supporting advisers and clients facing this challenge with a plethora of tools and calculators to assist with determining a potentially safe withdrawal rate, or illustrate a satisfactory income model that achieves the clients’ aims and objectives in retirement.

When we launched such a tool earlier in the year, we, like other providers recognised the importance of retirement modelling tools that establish the linkage of life expectancy data shown through survival probability, combined with the expected growth rates from the available range of fund portfolios.

Having data on how long a client is likely to live and an expectation of what returns you’ll potentially get from a portfolio, help an adviser model scenarios for their clients.

At Prudential we’ve also witnessed unprecedented growth in our pension transfer, drawdown and recently launched Isa sales, with over £5bn pounds of new premium investment as clients and advisers seek steady returns in the recent volatility.

With many advisers and clients finding comfort that an overlaying of smoothing out returns, this can potentially offer additional protection and reduce the risk of market timing when taking withdrawals, and reduce the effects of reverse pound cost averaging/sequence of return risk.

Meeting advisers throughout 2015, I’ve noticed a real change in advisers appetite to consider advising on and reviewing their clients defined benefit pensions.

Historically there was a real reluctance for many advisers to even consider getting involved.

In 2015, this has changed with many advisers looking to advise on deferred defined benefit pensions as part of their holistic retirement planning service.

For many clients their defined benefit pension could be their biggest asset. With the low gilt yield environment we find ourselves in today many transfer values are the highest they have ever been.

Among other reasons to transfer such as potentially higher tax free cash, flexibility over taking the benefits and maybe concerns over the solvency of some of the schemes.

There is also huge interest from clients over having more choice and flexibility with their death benefits through dependents, nominees and successors drawdown. Many people are now looking to provide legacy planning as well as retirement income from their occupational pensions in the future.

We’ve also seen a greater demand for us to support advisers throughout 2015 in the complex and challenging area of pension transfer advice.

In July, we had the Summer Budget which saw the announcement of the changes to pension input periods and the reduction to the annual allowance for high earners to come into effect in April 2016.

Both of these represent a planning opportunity for single premium pension planning between now and the end of the tax year.

Colin Simmons is business development manager at Prudential